Preparing for IFRS 16: Ensuring Value for Money in Lease Agreements

While this shift in accounting standards is significant, it's crucial to recognise that this update is part of a global movement toward more transparent financial reporting, rather than a specific policy initiative by the Department for Education. IFRS 16 aims to provide a more accurate reflection of lease liabilities and assets on balance sheets, aligning with international accounting practices. However, the essence of this change underscores the need for schools to ensure that their leasing arrangements are both compliant and financially advantageous.

Despite the new accounting requirements, schools must still prioritise value for money in their lease agreements. The Secretary of State for Education has authorised Finance Lease Agreements for essential assets like IT equipment, including laptops, tablets, printers, and security systems. Nevertheless, this does not imply that every lease structure automatically meets the criteria for best value. Full payout leases, where schools repay 100% of the equipment cost plus interest, might not offer the most cost-effective solution.

To adhere to the Schools Financial Value Standard (SFVS), schools must ensure that any lease agreement maintains principles of value for money, regularity, and propriety. Leases where the lessor retains a residual value investment, reflecting the previous FRS 102 standards for Operating Leases, often provide a clearer demonstration of value for money. These agreements can be more financially advantageous compared to full payout leases that accrue additional interest charges.

With the introduction of IFRS 16, schools and Academy Trusts must carefully evaluate their lease agreements to ensure compliance and optimal financial outcomes. The CHG Education Team is here to assist schools and resellers in navigating these changes. Our team provides expert guidance on structuring leases effectively, helping schools align with IFRS 16 requirements while achieving the best value for their investments.

In summary, while IFRS 16 represents a significant shift in lease accounting, the focus for schools should remain on ensuring their lease agreements offer value for money. By understanding the implications of this global accounting change and consulting with the CHG Education Team, schools can navigate this transition successfully and make informed, cost-effective decisions for their resources.